Internet Picks Presidential Candidate If Ackerman Gets His Way

By Kambiz Foroohar -
Jan 4, 2012

Bloomberg Markets Magazine

It’s just after 8 a.m. on Nov. 11,
and Peter Ackerman is staring at red numbers flashing on an
electronic board. He sees 2,008,069.

“That’s 2 million Americans who have signed on to having
another candidate on the presidential ballot,’’ he says,
beaming, in the Manhattan offices of the marketing agency for
Americans Elect, the group he’s backing with more than $5
million.

Ackerman, 65, who made more than $300 million working
alongside Michael Milken at Drexel Burnham Lambert Inc.’s
Beverly Hills, California, offices in the 1980s, is Americans
Elect’s chairman and top donor. He wants to circumvent U.S.
politics-as-usual by letting voters choose a presidential
candidate via the Internet who, with a running mate from a
different political party, will appear on every state ballot for
the 2012 election, Bloomberg Markets magazine reports in its
February issue.

Americans Elect is the latest manifestation of Ackerman’s
passion for grass-roots democracy -- an interest that has
divided his attention during his career as a financier. At
Drexel, he raised billions of dollars for junk-bond-fueled
takeovers in the 1980s. He helped secure $5 billion for Kohlberg
Kravis Roberts & Co.’s $31.3 billion buyout of RJR Nabisco Inc., (2547Q)
the deal immortalized in “Barbarians at the Gate.”

‘Nonviolent Conflict’

Today, he’s the majority shareholder of FreshDirect
Holdings Inc., a Web-based grocer operating around New York.
Former FreshDirect Chief Executive Officer Rick Braddock says he
saw another side of Ackerman in 2011 when Ackerman promoted a
nephew as CEO after summarily ousting Braddock and three
directors.

Ackerman embraces the idea that nonviolent resistance works
better than armed conflict to effect political change -- a
concept gaining ground around the world. He says strikes,
boycotts and protests can undermine despotic governments.

“The whole idea of nonviolent conflict is to get elements
inside the authoritarian regime to defect,’’ he says.

In 1983, he helped set up the Albert Einstein Institution
in Cambridge, Massachusetts, run by political science professor
Gene Sharp, whose “From Dictatorship to Democracy” advises
pro-democracy activists on how to topple dictators via protests
and mock elections. The work has been translated into 34
languages.

‘He’s Unstoppable’

Ackerman, who has co-written two books on nonviolent
resistance, formed the Washington-based International Center on
Non-violent Conflict in 2002. In 2005, he co-wrote a study
showing that non-violent action had been instrumental in 50 of
67 transitions to democracy since 1972, including in Chile, the
Philippines and Poland.

He has funded workshops for dissidents from Central Asia,
Iran, Iraq and North Korea, says Robert Helvey, a former U.S.
Army colonel who taught some sessions. Ackerman also funded the
Center for Applied NonViolent Action and Strategies, which was
started in 2003 by student leaders who’d helped bring down
Serbian dictator Slobodan Milosevic three years earlier. Some
members of Egypt’s April 6 movement, which toppled President
Hosni Mubarak, took civil resistance training from Canvas
organizers in Belgrade.

“When he’s passionate about something, he’s unstoppable,’’
says Mark Palmer, a former U.S. ambassador to Hungary.

Ending Partisanship

With Americans Elect, Ackerman wants to reduce the
partisanship that he says makes U.S. politics dysfunctional. The
group gained its first candidate on Nov. 30: former Louisiana
Governor Buddy Roemer, a Republican.

“The American people are far more moderate than the two
parties,’’ Ackerman says, wearing a navy sweater over a
pinstriped shirt during a rare media interview at LBi
International NV (LBI), where Ackerman has come to track Americans
Elect’s progress. “There is a strong sense of
disenfranchisement.’’

A third-party victory is highly unlikely, says John Sides,
a political science professor at George Washington University.
The best showing in the past century was by a former president,
Theodore Roosevelt. He went on to run as the Progressive Party
nominee in 1912 and placed second in that election. In 1992,
billionaire Ross Perot captured 19 percent of the popular vote
and finished third.

‘Very Romantic’

“The idea that there are wealthy centrists who for the
common good are prepared to enter the race is very romantic,
like angels sent from heaven,’’ Sides says.

Even so, Ackerman isn’t alone in his frustration.

“I don’t have the confidence at this point that the major
parties will really come to grips with our problems,’’ says John Burbank, founder of San Francisco hedge fund Passport Capital
LLC, who sits on Americans Elect’s advisory board.

Upward Spiral, backed by Starbucks Corp. (SBUX) founder Howard Schultz, urges Americans to withhold donations from both parties
to protest the divisive climate. He doesn’t advocate a third
party.

To overcome partisanship, Americans Elect’s rules call for
a ticket where the presidential candidate picks a vice president
from a different party. Any registered voter who signs up on the
group’s website becomes a delegate who can draft candidates,
submit questions and vote in Americans Elect’s online primaries.

Americans Elect must meet state requirements for
signatures from registered voters to get a candidate on the
ballot, says J. David Gillespie, a professor at the College of
Charleston in South Carolina who studies third parties. As of
early January, the group, aided by Peter’s son, Chief Operating
Officer Elliot Ackerman, had ballot slots in 13 states,
including California. Americans Elect hasn’t yet secured a place
on the presidential ballot in Iowa, where Republicans held
caucuses on Jan. 3 to select their nominee.

‘Unique Experiment’

“It is a unique experiment,’’ says Larry Sabato, director
of the Center for Politics at the University of Virginia.

Ackerman says he examined results from about 15 focus
groups to gauge support for a third-party candidate.

“If there is a new way to elect our leaders, we are all
in,’’ he says the findings show.

Americans Elect is not fully transparent with the American
people, says Fred Wertheimer, president of Democracy 21, a
Washington campaign finance advocacy group. Americans Elect
changed its tax designation to be a 501(c)(4) group, named for a
section of the U.S. tax code, meaning it’s a social welfare
organization that doesn’t have to divulge donor identities.

“The idea that a political party, whose sole purpose is to
nominate and elect candidates for office, can also be a social
welfare organization for tax purposes is an oxymoron,“
Wertheimer says.

Tax Status Change

Until Oct. 1, 2010, Americans Elect was registered as a
tax-exempt 527 political organization and its tax records were
publicly available. Ackerman, the only major funder at that
point, had donated $1.55 million. Based on those records, more
than half of Americans Elect’s $1.3 million in expenditures from
March to September 2010 went to members of its 50-strong
advisory board.

All told, Americans Elect raised $22 million as of mid-
December, mainly from about 55 people who have given more than
$100,000 apiece, Ackerman says.

The status change gives donors the anonymity they want,
says Kahlil Byrd, Americans Elect’s chief executive officer.
Wendy Drake, the group’s chief leadership officer, is in charge
of recruiting top donors. Wertheimer says he has written to the
Internal Revenue Service challenging the legality of the change.

FreshDirect Infighting

At FreshDirect, Ackerman has shown an autocratic side,
former CEO Braddock says. Braddock sued the company in July,
accusing Ackerman of breach of fiduciary duty. He says Ackerman
has refused to pay him severance, unfreeze his $6.5 million
investment or even talk of settlement.

“Ackerman pulled out the rug,’’ Braddock says. “Ackerman
has his son heading Americans Elect and his nephew running
FreshDirect. Nepotism has apparently worked for him.’’
Jason Ackerman, 44, Peter’s brother’s only son, co-founded
FreshDirect in 1999. Peter Ackerman invested $65 million and
acquired 83 percent of the stock for a penny a share in 2000. He
remained chairman until 2005, when Braddock got the post.
Ackerman’s stake has declined to about 50 percent as the company
has raised capital from other investors.

Braddock, formerly CEO of online travel company
Priceline.com Inc., (PCLN) says FreshDirect was near failure when he
took over as CEO in 2008. Many new customers were placing only
one or two orders before they abandoned the website, he says. He
focused on service and introduced daily reports to track
operations. FreshDirect revenue grew 9 percent in 2009 and 20
percent a year later, Braddock says.

Surprise Call

Given the improvement, Braddock says he was surprised by a
Feb. 6, 2011, phone call in which Ackerman complained in
expletive-filled language that Braddock had changed a board
meeting date without consulting him. Three weeks later, Ackerman
fired three independent directors. Two days after that, Braddock
says the winnowed board told him to leave the company. Jason
Ackerman became CEO two months later.

FreshDirect’s shareholder agreement allows Ackerman to
appoint and fire directors, says his lawyer, Thomas Richardson
at Arnold & Porter LLP. Ackerman says the board had already
agreed in January to seek a new CEO and he was exercising his
right as majority shareholder to dismiss directors.

“They were independent in terms of view,’’ Ackerman says
of the three he fired. “But they served because I had a right
to pick them and a right to unpick them.’’

‘No Radical’

“He may have had the right to fire the directors, but it’s
not good corporate governance,’’ she says. “Directors are not
just there to look after the interests of the major
shareholder.’’

Ackerman has spent decades studying political power and how
to challenge it. After getting a degree in political science at
Colgate University in Hamilton, New York, he headed to Tufts
University’s Fletcher School in Boston in 1968 to pursue
international relations.

“Those were tumultuous times, but Peter was no radical,’’
says Hans Binnendijk, a fellow student who’s now vice president
for research of the National Defense University.

Ackerman met Joanne Leedom, who became his wife, at
Fletcher.

“For his first date, we all went to a lecture and then
came back and played tabletop ice hockey,’’ Binnendijk recalls.

Ackerman remembers pondering why the U.S. was losing in
Vietnam.

“I became interested in why people with more military
hardware don’t necessarily win,’’ he says.

Studying Gandhi

Ackerman’s adviser sent him to see Sharp, who was teaching
at Harvard University. Ackerman’s 1,100-page thesis focused on
how Mahatma Gandhi used mass civil disobedience to win India’s
independence from England. He turned the paper into a 1994 book,
“Strategic Nonviolent Conflict.” PBS aired “A Force More
Powerful,” which was based on the book, in 2000.

Ackerman took a job at Burnham & Co. in 1973 after meeting
then-President Mark Kaplan. Burnham merged with Drexel two weeks
later. Ackerman joined Milken’s junk-bond team in 1978. He
headed special projects, raising money for restructurings and
takeovers. Even as he was earning millions of dollars securing
financing for deals such as Texan oilman T. Boone Pickens’s bid
for Gulf Oil Corp., he was funding Sharp’s research.

Tax Disputes

He moved to London for Drexel in 1989. Drexel declared
bankruptcy in February 1990. Milken eventually pleaded guilty to
six counts of violating securities laws and paid $1.1 billion in
fines and settlements.

Ackerman was never charged with any misdeed. He paid $73
million to settle a civil case by the Federal Deposit Insurance
Corp. and Resolution Trust Corp. over losses at savings and
loans that had invested in junk bonds without admitting any
wrongdoing.

In 2005, he sued for a $5 million refund from California’s
tax board, claiming he’d already paid taxes on the $73 million.
The IRS allowed him to take deductions on future earnings.
California also offered deductions, but he couldn’t claim them
since he no longer lived in the state. He pushed for a bill that
would have enabled him to get a refund retroactively. The
proposal failed.

Ackerman, who’d set up a firm called Rockport Capital Ltd.
in London, returned to the U.S. in 1995. He helped set up Crown
Capital Group Inc. to invest in private companies. One success
was a $30 million investment in 1999 in Thales Fund Management
LLC, a New York-based hedge fund that had $1 billion in assets
in 2011 when it closed its operations.

‘Cheese-Spread Advertising’

Others were flops, court documents show. Ackerman lost $14
million on Resort Theaters of America Inc. in 1999, which
planned to build movie houses at vacation spots. A $15 million
co-investment in a towel-making factory in Mexico also came to
nothing. He invested $20 million in preferred shares of Los
Angeles advertising company Emak Worldwide Inc. (EMAKQ) in 2000. Emak
filed for bankruptcy protection in 2010, emerging in 2011.
Ackerman still owns its most profitable unit, Chicago-based
Upshot Inc.

Ackerman focused more on non-business pursuits than his
companies, says former Emak CEO Jim Holbrooke.

Ackerman began targeting U.S. politics in 2007. He joined
Unity08, which aimed to nominate a third-party presidential
candidate. Fundraising stalled amid a legal fight with the
Federal Election Commission over contribution limits.

Americans Elect’s Roots

Ackerman took over Unity08, which became Americans Elect,
after an appeals court in 2010 overturned the FEC’s decision
that required the group to register as a political action
committee. The FEC decided not to take further action. That has
allowed Americans Elect to raise millions of dollars and hire
lawyers, pollsters and signature gatherers as it heads toward
the 2012 election.

“What the iPhone did for communications, Americans Elect
has the potential to do for politics,’’ says board member and
former Hallmark Cards Inc. CEO Irvine Hockaday.

Doubters point to myriad obstacles, among them the dismal
record for third-party candidates. Another hurdle may be
Ackerman’s own inability to show he’s as democratic and
transparent in business as he expects the rest of the world to
be in politics.